Key Takeaways
- • Net interest payments on the national debt rose 8% to $1.05 trillion in fiscal 2026, according to Treasury Department data, outpacing growth in total spending, revenue and GDP.
- • Gross interest costs reached $1.36 trillion at an average rate of 3.53%, more than double the 2021 rate, with net interest now running about $2.9 billion per day.
- • Net interest equaled 3.2% of GDP, per the Peter G. Peterson Foundation, breaking the previous record set in 1991 and placing interest third among federal outlays behind Social Security and Medicare.
- • The fiscal 2026 deficit widened to $1.99 trillion, 12% larger than the $1.78 trillion gap in fiscal 2025, as spending rose 6% to $7.4 trillion against 3% revenue growth to $5.4 trillion.
- • Over $10 trillion of publicly held debt, about one-third of the total, matures within 12 months and must be rolled over at higher rates, with the 10-year Treasury yield now above 5%.
Summary
The U.S. federal government's fiscal 2026 results, released by the Treasury Department, show a deepening strain from debt service. Net interest payments rose 8% to $1.05 trillion, faster than total spending, revenue and nominal GDP growth of about 6%. The budget deficit reached $1.99 trillion, up 12% from $1.78 trillion in fiscal 2025. Revenue grew 3% to $5.4 trillion while spending increased 6% to $7.4 trillion. Interest now ranks third among federal outlays, behind Social Security and Medicare and ahead of defense spending and Medicaid.
Gross interest costs totaled $1.36 trillion for the year at an average rate of 3.53%, more than double the 2021 level that preceded the Federal Reserve's tightening cycle. The Peter G. Peterson Foundation estimated net interest at 3.2% of GDP, a record that surpasses the previous high set in 1991. With gross debt at $40 trillion and publicly held debt at roughly 100% of GDP, interest is projected to be the fastest-growing component of the federal budget.
Refinancing risk is rising. Treasury Secretary Scott Bessent has increased reliance on short-term debt and is retiring long-term obligations. About one-third of publicly held debt, more than $10 trillion, matures within the next year and must be rolled over at current rates. The 10-year Treasury yield is now above 5%, above the Congressional Budget Office's February forecasts of 4.1% for 2026, 4.2% for 2027, and 4.3% to 4.4% in later years. The CBO had projected annual debt interest reaching $2.1 trillion by 2036; the Committee for a Responsible Federal Budget estimates that if yields stay about one percentage point above CBO assumptions, interest would reach $2.8 trillion, or 5.9% of GDP, by decade's end.
Policy responses remain limited. Bessent has argued that 3% growth can reduce the debt burden. CBO Director Phillip Swagel disputed that view, noting that stronger growth raises spending on benefits and tends to push interest rates higher. Assuming rates of 4% to 5%, Swagel estimated stabilizing the debt would require nominal GDP growth of 7% to 8% or real growth of 5% to 6%, compared with a latest real GDP pace of 2.2% in the second quarter. CRFB President Maya MacGuineas called for a fiscal intervention, while Trump has proposed a $5,000 "dividend" payment and is distributing Medicare and Affordable Care Act rebates.
Gross interest costs totaled $1.36 trillion for the year at an average rate of 3.53%, more than double the 2021 level that preceded the Federal Reserve's tightening cycle. The Peter G. Peterson Foundation estimated net interest at 3.2% of GDP, a record that surpasses the previous high set in 1991. With gross debt at $40 trillion and publicly held debt at roughly 100% of GDP, interest is projected to be the fastest-growing component of the federal budget.
Refinancing risk is rising. Treasury Secretary Scott Bessent has increased reliance on short-term debt and is retiring long-term obligations. About one-third of publicly held debt, more than $10 trillion, matures within the next year and must be rolled over at current rates. The 10-year Treasury yield is now above 5%, above the Congressional Budget Office's February forecasts of 4.1% for 2026, 4.2% for 2027, and 4.3% to 4.4% in later years. The CBO had projected annual debt interest reaching $2.1 trillion by 2036; the Committee for a Responsible Federal Budget estimates that if yields stay about one percentage point above CBO assumptions, interest would reach $2.8 trillion, or 5.9% of GDP, by decade's end.
Policy responses remain limited. Bessent has argued that 3% growth can reduce the debt burden. CBO Director Phillip Swagel disputed that view, noting that stronger growth raises spending on benefits and tends to push interest rates higher. Assuming rates of 4% to 5%, Swagel estimated stabilizing the debt would require nominal GDP growth of 7% to 8% or real growth of 5% to 6%, compared with a latest real GDP pace of 2.2% in the second quarter. CRFB President Maya MacGuineas called for a fiscal intervention, while Trump has proposed a $5,000 "dividend" payment and is distributing Medicare and Affordable Care Act rebates.
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